Intellectual property can take many forms. Some common forms include trademarks, trade names, servicemarks, service names, logos, business plans, computer programs and designs, marketing information and business ideas. Intellectual property has been identified by some as the engine that fuels our economy. It provides the ability to “build a better mousetrap” and the “know-how” to build it. Protecting intellectual property is always a difficult task. Federal and state laws that are intended to protect the creator of the intellectual property must also enable the free market to improve upon old ideas.The purposes of this article are to identify some of the challenges facing the owner and creator of intellectual property, as he or she seeks to enhance, modify, improve and market technologies and inventions.
I. An agreement is almost always a necessity
Once a trade secret is shared with another, without an agreement or understanding, the secret loses its significance. As the secret becomes known by more and more people, there is a greater risk that others will find out the secret and therefore may no longer be a secret. Once a secret is legally “out of the bag”, it is can no longer be protected as a “trade secret”. It is therefore important to make sure that the secret cannot legally be taken “out of the bag”, and cannot legally be disclosed to another without permission.
A written agreement that allows one to share a trade secrets must therefore be sufficiently comprehensive, to identify and protect both the trade secret and all enhancements and improvements that can be made to improve the trade secret.
The greatest concern when seeking “patent” protection is that the entire idea and concept must be fully disclosed in the patent application and therefore loses most trade secret protection. Patented designs face the threat that someone else can materially modify the protected design and develop a competing product that does not violate the patent. A new design that is a material modification to the protected patent design, may not violate the protected patent and may be patentable itself. A patent application must therefore be artfully drafted to either create smaller patents that cannot be useful if modified, and/or to fully afford protection over all possible improvements and alternative designs that one may attempt to make to the invention.
Trade secret protection, as distinguished from patent protection, is focused on the confidential nature of the secret. By agreement one can protect all forms of “derivative works” that are derived from the underlying trade secret. However, there is no trade secret protection if one can show there was no “secret” or that competing intellectual property was “independently” developed without use of the trade secret or knowledge gained therefrom.
II. When does the law recognize a trade secret?
The law typically will not recognize a trade secret if the keeper of the secret, by their behavior or actions, does not recognize the secret. This means that trade secrets must be protected and guarded. The lengths that one goes to protect trade secrets depend upon the nature and extent of the secret. In some cases, keeping the materials in a vault or special safe is appropriate. In most all cases, the materials must be marked “trade secret” or “confidential information”, and must be kept away from anyone and everyone who may be in close proximity to the materials and who have not signed agreements intended to protect the secret. Limiting access via passwords and codes to those “who need to know” is important. Those with access to the trade secrets must enter into confidentiality agreements, that recognize the trade secret materials, and agree to protect them.
It could be argued that allowing access to employees and third parties without any agreements, offers evidence that proper precautions are not being taken, and that the creator or owner of the trade secret should not be afforded legal protections under trade secret laws.
III. Agreements involving trade secrets must be carefully drafted
While the law recognizes the need to require employees and third parties to enter into trade secrets, there are cases where the agreements that are “over-broad” can create other legal problems. This can occur whenever an employer threatens an employee with termination if they do not enter into a trade secret agreement. Any use of threats of termination of employment may violate public policy and other labor laws, and therefore cannot and should not be used, if at all possible, and in all cases cannot be used when a trade secret agreement is “over broad”. For example, in California, one company was sanctioned by the Court for requiring all employees to sign a combination “trade secret” and “non-solicitation” agreement, or face termination.
The Court opinion reasoned that no new consideration was being granted to the employee for being asked to give away its legal rights under the non-solicitation provisions. The lesson to be learned is never make demands of an employee under threat of termination, if the demand is to ask the employee not to do something that by law they are allowed to do. The prudent approach is to offer to the employee new incentives or new consideration in exchange for their new agreements and covenants.
Because trade secrets are protected in California, it may be acceptable under the circumstance to demand that the employee sign a restrictive and narrow trade secret agreement or face termination. Great caution is advised if this is the approach that the employer wants to take. The safest route is to obtain the employee’s signature to these types of agreements at the time of hire, and as a condition for employment. Alternatively, the employer can offer to the employee additional incentives or consideration, without any threat of termination. If a threat of termination is justified and sought, then the employer should explain to the employee the rationale and need to protect not only the employer’s trade secrets, but the trade secrets of third parties, that the employer may later acquire and be obligated to protect, and the agreement should not be over-broad.
Our firm has developed a series of three (3) types of employee and independent contractor trade secret agreements: (i) one version for new employees, (ii) one version for existing employees that has limited protection for trade secrets allowed to be protected as a matter of trade secret law, and (iii) the third version that offers to the employee additional consideration. Please contact us to make arrangements to obtain these documents in Word or WordPerfect formats.
IV. License Agreements and issues related to title
It is very typical that the licensor of intellectual property will be asked to include a warranty that they have legal title to the underlying intellectual property, free of any claims by third parties of infringement. The owner may also be asked to protect the user from any claims by third parties alleging that the intellectual property infringes upon another’s title. If for any reason employee agreements, independent contractor agreements, and other agreements with third parties are not properly drafted to protect from possible loss of title to intellectual property, then the owner or licensor of intellectual property may later suffer a breach of these representations of title.
Agreements that seek to protect intellectual property and trade secrets cross-over into several different areas of law. These include: (i) Copyright laws intended to protect marks and logos, as well as printed art and words; (ii) Trade secret laws that are intended to protect the owner of the trade secrets, but typically only if the owner exercises due diligence to protect themselves; and (iii) Patent laws that are intended to protect those who first conceive of inventions and those who develop them into working prototypes or practical devices. These bodies of laws operate separate from each other. However, in the area of intellectual property, these legal areas will intersect each other and cross-over into other areas of law, giving rise to confusion and disputes, that the courts have solved by developing equitable legal doctrines. In most cases properly drafted agreements can solve and eliminate confusion and disputes. A general discussion of these areas of law follows.
1. Copyright Laws in General
These federal and state laws govern written and/or transcribed materials, audio materials, artwork, and generally all works that can be transferred to another media. These laws protect the creator of the work if the owner had properly noticed on their first use that their work is “copyrighted” before their works are disseminated to the public. Federal registration of the copyright is necessary if the owner of the copyright wants to pursue a federal legal action to protect the copyright. In cases of logos, service marks and other symbols that represent the unique goodwill of a product or company, the first to file and obtain federal registration of a unique mark receives protection of the mark in all jurisdictions in the United States, excepting only those territories where there has been prior and continuous uses of similar marks by others. Prior uses of a logo or mark are protected without federal registration, but only in the limited geographic territory and provided that the prior use was continuous. Once a federal registration is granted to a competing mark, the prior unregistered user is then limited to that geographic territory of its prior and continuous use.
2. Patent Laws in General
These laws generally vest in each inventor participant and creator in the design of an invention legal rights to the invention or co-ownership. As a result, any invention co-conceived by an employee or third party, including any derivative works that can evolve from an on-going project or design services, may become the lawful property of the inventor or co-inventors, unless there is an express agreement to the contrary, or a clear violation of a trade secret law. Patent protection is enforced by federal registration of the patent. The application must fully disclose all essential and material elements of the invention, to enable third parties to duplicate it. Patent protection when granted will be granted to the first to invent the invention, and not the first to file for registration. It is therefore extremely important for the patent applicant to be able to prove when the invention was first conceived, developed and created for practical use or as a prototype.
3. Shop Right Doctrine
A doctrine under copyright law, generally states that the works by an “employee” performed at the request and direction of his or her employer are “works made for hire” that will be owned by the employer. Under the doctrine, the employer would therefore be considered the author of the work, and owner of all “Derivative Works”, absent a written agreement to the contrary. However, in the case of an independent contractor, working from his or her facility with his or her own tools, the authorship or ownership will typically be vested in the independent contractor. The general rule can be modified by agreements between the parties. Furthermore, in cases where the employee of an employer is working independently on his or her own work or invention, the employer may not have any claim to ownership or authorship, without an express written agreement.
4. Derivative Works
Typically used in copyright law and trade secret law, it generally refers to all versions or emanations of the underlying copyrighted materials or trade secrets.
5. First Sale Doctrine
This doctrine of copyright law, evolved to grant to owners of copyrighted materials basic rights of personal use, duplication and sale of their purchase. The doctrine has previously been applied in the area of music, where the purchaser of music records or compact disks, have the right to duplicate the original materials on tape or disk. Further, they have the right to sell or resell the original record or compact disk. More recently, the doctrine has been applied in cases of software license agreements that attempt to prohibit the subsequent sale of the original works. The doctrine is generally applied when there is no express agreement, negotiated and entered into between the parties. The doctrine has been applied when there is a “break the seal” license, or other form of standard license agreement that is not separately negotiated between the parties. The rights granted to the owner under the First Sale Doctrine, do not grant the first owner or subsequent owners rights to violate the copyright, or to use the intellectual property, or any components thereof, in violation of the rights of the creator, publisher or owner of the underlying work. The First Sale Doctrine only grants those rights that one would expect to acquire upon the purchase of the product, specifically, the right to re-sell “in-tact” the original medium (i.e. the compact disk or record album) and/or the right to use the work or art for non-commercial and personal purposes.
6. Independently Developed
This doctrine that is typically applicable to copyright and trade secrets, means that any invention or intellectual property that is independently developed without the aid or assistance of trade secrets and/or without the aid of another’s intellectual property, is considered independently developed, and does not violate another’s trade secret. The person claiming that the work product is theirs because it was “independently developed” may have to prove the evolution of their creation to support that it was “independently developed.”
The foregoing discussion offers a snapshot of the most common legal issues facing the owner and creator of intellectual property. It is important that at the moment in time that that intellectual property is first created, and even though its value is still unknown, the owner/creator must timely protect the property, or forever risk abandoning legal ownership once the property is made available to the general public.